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SELL in MAY…just got moved up a month

You’ve heard the old Wall Street adage that recommends selling before the seasonal summer slump…it’s been updated for 2014:  “SELL in MAY APRIL and walk away.”

The S&P500 has broken below its 50 day moving average for the second time this year.  Although it’s only off 4% from record highs, the NASDAQ is in near freefall.  The tech heavy NASDAQ is well below its 50 day moving average (dma), fallen through support at the 100 dma, and is approaching the 200 dma.

The NASDAQ hasn’t fallen below its 200 dma since December 2012.  In the past month, the index has fallen over 8% from a multi-year high.  That’s the largest drop in well over a year.  2013 was characterized by many placid pullbacks in the range of 3-6%.  The first four months of 2014 have been much more volatile, with at least 4 pullback.

The personality of the market has definitely changed.  We have no way of knowing if it will be a minor correction, drop 12% like in 2012 or plunge 20% like in 2011.

There are plenty of reasons to be pessimistic.

  • First quarter profits have been revised down, from initial estimates of 6.5% growth to possibly as low as 1%.
  • Tension over Russia’s annexing of Crimea.
  • China’s slowing growth and unprecedented first private company bond default.
  • Deflation in Europe.
  • Cost of Obamacare.

This is not a time to be buying dips in the market but rather for building a watch list of quality stocks to purchase once the indexes resume an uptrend.